I'm an economist, and one of the most common misperceptions I encounter is that my subject is just about predicting which way the stock market is headed or when interest rates will rise. Economics, in fact, is far more interesting. It can help explain all sorts of things in life, from what we eat to our choice of romantic partners to where we live.
To encourage my Cornell students to consider how economics applies to their everyday lives, I challenge them to "pose an interesting question based on something you've seen or experienced personally, and then use basic economic principles to craft a plausible answer to it." I call it the Economic Naturalist writing assignment, a nod to how a few simple principles in biology often help people make sense of what they observe in the natural world around them.
Here I'll share two of the most interesting questions my students have posed and answered over the years. In future pieces, I'll describe more of their examples and also respond to questions that you submit. You can send me questions via Twitter (@econnaturalist) or email (email@example.com).
My all-time favorite was submitted more than a decade ago:
Why do brides pay thousands of dollars for a wedding dress they'll never wear again, while grooms rent cheap tuxedos even though they'll need formalwear on many future occasions?
Like others among my favorites, this question embodies an apparent contradiction: given the likely future opportunities to make use of these garments, shouldn't brides be renting and grooms buying?
In a 2007 collection, I described the ingenious answer Jennifer proposed, which began with the premise that on big social occasions, it's more important for women to make a fashion statement than it is for men. For a rental company to serve women, she reasoned, it would need to stock scores of different gowns in each size, since a narrower range of options might result in a bride appearing in a gown that guests had recently seen at another wedding.
But with an inventory that large, each gown would sit idle most of the time, and as the years went by, many would go out of fashion before even being worn once. To cover its costs, then, a company might have to charge a rental fee nearly as high, or perhaps even higher, than the gown's purchase price. And in that case, most brides would say, "Why not buy?"
Economics can help explain all sorts of things, from what we eat to our choice of romantic partners
By contrast, Jennifer continued, men don't seem to mind being seen in the same attire that other men wear on formal occasions. That means a tuxedo rental company can serve men with a relatively small inventory of suits in each size. And since each of those suits will be rented many times a year, fees can be only a small fraction of the suit's purchase price. Men will need tuxedos on future occasions, yes, but with wedding and honeymoon expenses looming, many see renting as an attractive way to save a little money.
Almost every feature of the built environments we inhabit was shaped by an implicit or explicit cost-benefit calculation. Observe and wonder! Jennifer's own wedding had occurred six months before she enrolled in my course, and she told me her question was prompted by her initial inability to understand why she'd spent so much on a dress she'd never wear again. There's a good chance, however, that if she'd been my student this term, she would have posed a very different question:
Why are today's bridal gowns so much more expensive than those of a decade ago?
A plausible answer begins with the observation that the internet has transformed rentals from a local to a national market. That has made large inventories of gowns economically viable in the same way that Netflix has made Hindi-language movies economically viable for viewers in small American cities. A local theater couldn't show those movies because it could never muster large enough audiences to cover its costs, just as a local rental store couldn't cover the costs of a largely idle inventory of wedding gowns.
But with access to an entire country of potential viewers, Netflix can rent even obscure movies hundreds of times a year. Similarly, an online national market makes it possible for most of the required large inventory of wedding gowns to be rented out most of the time, which enables rental fees that are dramatically lower than purchase prices.
Every bride wants to look special, but special is a relative concept. Brides who are willing to spend up to several thousand dollars to make a strong fashion statement now have two options: they can spend that much to buy a dress, or they can rent a dramatically nicer designer dress from a national rental company. Because some women choose the latter option, they've effectively raised the bar that defines what qualifies as a fashion statement.
It's not that designer dresses have gotten more expensive — their prices were always high. What changed is that large national rental operations have made them accessible by making it practical to rent them. Few brides could afford to buy wedding dresses costing $10,000, but since such gowns can now be rented online for 15 to 30 percent of their purchase price, they're no longer confined to the weddings of the super-rich.
Here's my favorite question from my most recent batch of submissions:
Why are cooked whole chickens at the grocery store so much cheaper than uncooked ones?
Jansen began with the puzzling observation that Ithaca's largest supermarket sells moist, savory, deliciously spiced rotisserie chickens straight from the broiler for $6 (about $1.50 a pound), while in the adjacent cooler it offers uncooked chickens at $2 a pound. Since preparation and cooking involve extra steps and expense, he wondered, why don't rotisserie chickens sell for more?
Almost every feature of the built environments we inhabit was shaped by a cost-benefit calculation
His answer was that low-priced rotisserie chickens help managers cope with unpredictable variations in demand. During slow weeks, as more uncooked chickens approach their sell-by dates, managers can cook those birds and tempt consumers with the aromas wafting from the broiler. And any cooked ones that don't move at discount prices can then be used at the deli counter to make high-margin items like chicken soup and chicken salad.
Human desire is unbounded, but available resources are limited. That contrast dictates fundamental elements of compromise in every product design decision and every human behavior. Look around and give thought to the patterns you see!